World Bank Staff Backs More Disclosure by Extractive Industries

10 March 2004

The World Bank Group should begin requiring that extractive industries receiving Bank loans disclose what payments they make to governments, according to an internal Bank document obtained by freedominfo.org.

The revenue disclosures, however, should not begin for two years for existing loans, according to Bank staff recommendations, the "draft management response" to external and internal reviews of its activities concerning extractive industries. The board is expected to consider the recommendations this spring. The recommendations on disclosure are only a part of a broad "Extractive Industries Review" prepared by independent stakeholders, headed by Emil Salim. The management response also comments on two other evaluations developed internally.

In general, the Jan. 26 management response indicates receptivity to greater transparency with regard not only to the revenues paid to governments by extractive industries, but also for the process of considering new projects and evaluating completed ones.

However, the fine print of the response also includes a flat rejection of a recommendation that the Bank create an Information Ombudsman.

Disclosure of Oil, Gas, Mining Revenues

The issue of revenue disclosure has been a long-standing demand by nongovernmental organizations, that have pressed oil companies and other extractive industries to disclose payments, but without much direct success. Greater disclosure, it is argued, will aid in the fight against corruption. For about 50 borrowing counties, income from extractive industries accounts for more than 30 percent of government revenues or exports.

Last year, the G-7 countries engineered the start of a pilot project to encourage more disclosures on a voluntary basis, known as the Extractive Industries Transparency Initiative (EITI). And in past speeches one top World Bank official has supported more disclosure, but not as a condition of Bank loans and guarantees for extractive industry projects. Such assistance may come through Bank support for government-sponsored projects, or via loans and guarantees to the private sector from the International Finance Corporation and the Multilateral Investment Guarantee Agency. Overall, the Bank financed about $900 million per year over the last 10 years, compared to total Bank financing of around $25 billion.

Full Disclosure Not Planned Immediately

Bank management’s draft response indicates general support for disclosure of extractive industry (EI) payments, and suggests mandating disclosure "when financing significant new EI production." A footnote explains that "significant" would be more than 15 percent of host government revenues, or where revenues are very large in absolute terms, or where there are very significant environmental and social risks."

The IFC and MIGA "will encourage disclosure by all sponsors of significant EI payments to governments as a usual practice," the management response also says, going on the conclude, "Within two years IFC and MIGA will require disclosure by all sponsors of significant EI payments to governments a usual practice." The recommendation from the review panel did not include a two-year delay.

As for disclosures by governments, the management response suggests that the Bank "encourage" resource-rich countries to be transparent about EI related payments and their use. The complexities of what payments should be covered — revenues, taxes, etc. – should be addressed through the EITI process, which the Bank has and should continue to support, according to the management response.

The response also indicates support for the disclosure of "key contracts with governments." Doing this would require a revision of existing disclosure policies. The IFC recently called for public comments as part of its disclosure policy review (see freedominfo.org story). The IFC has not issued a proposed revision.

The management response hints at an outcome in the EI context, stating that, the IFC intends to require investors to make information available about projects’ impacts "on a regular basis" and "it will provide regular reports on the impacts of new EI projects after the board approval." It suggests, but does not quite say explicitly, that a new disclosure policy should cover Private Sector Agreements and Host Government Agreements for significant new projects, with some provision to protect confidential material "not essential for the public interest."

Not All Other Transparency Proposals Accepted

The management response supports a number of other recommendations for greater disclosure, but in some instances appears to reject suggestions, such as one for an information ombudsman.

The Extractive Industries Review report urged translation into local language of all relevant project documents, a recommendation the management response did not endorse, but says will be handled in the course of the IFC disclosure policy review.

A recommendation for preparation and publication of "net benefit analyses" appears to win management support as regards Bank operations, but not necessarily for IFC-supported projects, noting that the IFC disclosure policy is under review.

A related recommendation called for the Bank to help governments create a database of agreements between governments and oil, gas and mining companies "in order to allow comparison of different arrangements." The response indicates only that the Bank "provides technical assistance concerning EI contractual and fiscal terms and best practices."

To a recommendation for earlier and wider dissemination of its disclosure policy, the bank management says, "The WBG will take measures to ensure that its disclosure policies are made available to affected people early in the project cycle."

Bank management appears to have accepted a recommendation that project completion reports include "the calculation of an ex-post factor rate of return" or other objective measurements. Management also indicated support for the development of more local capacity to monitor the impact of EI projects.

Financial intermediaries also should have disclosure policies, according to the review recommendations, and the bank management says it "will examine its policies," noting that this question has implications for other Bank operations.

No to Information Ombudsman

The recommendation to create "an independent and impartial Information Ombudsman to monitor disclosure policy implementation" was not greeted with open arms.

Management replied: "This issue goes well beyond the EI sector. Present structures such as the Inspection Panel (IBRD/IDA) and the CAO [Compliance Advisor Ombudsman]are considered to provide a sufficient avenue of appeal concerning WBG adherence to all of its policies, including those on disclosure, for all of its projects, including EI projects. It is not clear that addition of a specialized Ombudsman for information would provide an incremental benefit."

By Toby McIntosh

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ABOUT IFTI WATCH

In this column, Washington, D.C.-based journalist Toby J. McIntosh reports on the latest developments in information disclosure in International Financial and Trade Institutions (IFTI).
Contact: freeinfo@gwu.edu or
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